New study forecasts 2.62M US prepaid electric customers in 2021

Smart meter based prepaid electric service is poised for growth in the United States, according to our latest research. We found that utilities are increasingly looking to launch this new payment option as an incremental benefit of their advanced metering infrastructure (AMI) deployments.

The experience of the early-adopting utilities, such as the rural electric cooperatives, suggests that prepaid service can benefit consumers and utilities alike. For householders, the benefits can include better control over energy usage, reduced consumption, bill savings, and increased customer satisfaction, while utilities can experience improvements in collection and debt levels, operational efficiency, and front-line staff morale.

These potential benefits are attracting the interest of a wide range of utilities, including the investor-owned companies who serve around 70% of US residential electric customers. But how quickly can this market develop?

Scenarios for market evolution

That all depends on how a number of factors play out, particularly:

Smart metering – AMI supports a centralized, software-managed approach to prepayment service, which avoids a need for dedicated prepaid metering infrastructure. Over the next five years, the footprint of advanced meters in the US will become more extensive, providing ever greater opportunities for utilities to launch a smart meter based prepayment service.

Regulation – Prepaid service faces scrutiny from consumer advocates, who raise concerns that certain existing consumer protections for utility service must be waived to accommodate the technological advances that AMI-based prepayment leverages, such as remote disconnection. While the public utility commissions appear increasingly open to requests from the investor-owned utilities for prepaid pilots, the regulatory situation remains challenging and the outlook somewhat uncertain.

Consumer acceptance – Prepayment is a well-established form of payment for very many services, including fuel, public transport, and mobile communications. However, this payment mode is far less well established in the US for utility service. Prepaid program participation rates have reached 10-15% at a few utilities, indicating that there is real appetite among consumers for this type of offering. But the uptake for many prepay programs is still in the single digits, reflecting the relative newness of this payment option.

Taking all these factors into account, we forecast that there will be between 2.62 and 2.86 million AMI meters used for prepaid electric service (‘AMI prepay meters’) at the end of 2021, rising from an estimated 660,000 at the end of 2017.

Forecast of AMI meters used for prepaid electric service in the United States – Source: Quindi Research

The alternative scenarios represent two plausible views for how regulation could affect the roll-out of prepaid service. The lower estimate (our Cautious Acceptance scenario) assumes that while many states will allow AMI prepay pilots and commercial services by 2021, some requests will be blocked or decisions delayed beyond this date. On the other hand, the Growing Assurance scenario assumes that going forward the majority of states permit AMI prepay, with only a few dissenting, as data from large-scale pilots and programs corroborates the benefits of prepaid electric service for utilities and consumers.

We believe that the next five years will see prepaid electric service start to reach scale in the US, particularly as the IOUs move beyond pilots and launch commercial programs. Adoption levels of 10-15% are not at all unrealistic in the foreseeable future, and could eventually reach 20% or more.